Copper Falls as Rising Dollar Curbs Demand for Inflation Hedge

NEW YORK, June 16 -- Copper prices fell the most in eight weeks in New York and London as a stronger dollar curbed demand from investors seeking a hedge against inflation.

    The U.S. Dollar Index, a gauge of the greenback's value against six major currencies, climbed as much as 1.5 percent. The Reuters/Jefferies CRB Index of 19 commodities dropped as much as 2.7 percent, falling for a second session. Raw materials often move in the opposite direction of the dollar as traders use metals, grains and energy as alternative assets.

    "Commodities are down across the board today as traders continue to take their cue from the dollar," said Matthew Zeman, a LaSalle Futures Group trader in Chicago. "One of the big things to look out for now is whether we're going to see the inflation that people had been worried about."

    Copper futures for July delivery fell 8.85 cents, or 3.7 percent, to $2.285 a pound on the New York Mercantile Exchange's Comex division. That marks the biggest decline for the contract since April 20. Copper for September delivery slid 3.6 percent to $2.2965 a pound.

    The metal also fell as swelling stockpiles in China and declines in U.S. manufacturing signaled easing demand.

    Inventories of copper in Shanghai warehouses climbed to 60,647 metric tons last week, the highest since March 2008. China is the world's biggest user of the metal. New York copper prices are still up 62 percent for 2009 after climbing as China's imports rose to a record earlier this year.

    Weakening Demand

    The gain in Shanghai-monitored stockpiles "may signal that China's reserve purchases are coming to an end," Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said in a report. "There is more than sufficient supply in the market."

    Global copper production will outpace demand by 745,000 tons this year, changing to a deficit of 44,000 tons next year, Australia's Macquarie Group Ltd. said in a report.

    Manufacturing in the New York region this month contracted at a faster pace compared with May, the Federal Reserve Bank of New York said today. The weakening of the bank's general economic index shows the economy may be months away from a sustained recovery, analysts said.

    "We're not out of the woods economically yet," Zeman of LaSalle said. "The market is looking more closely at the fundamental factors, now that the buying related to a weaker dollar has come out."

    Copper for three-month delivery fell $229, or 4.4 percent, to $5,006 a ton ($2.27 a pound) on the London Metal Exchange.

    Among other LME metals for three-month delivery, aluminum fell 2.1 percent to $1,610 and tin dropped 3.8 percent to $15,050 a ton. Nickel slid 5.8 percent to $14,775 a ton, lead sank 6.1 percent to $1,677 a ton, and zinc plunged 6.8 percent to $1,575 a ton.

    (Source: Bloomberg)